Sanctions and Supply Chain Disruptions: Navigating Uncertainty in a Challenging Global Landscape
The ongoing conflict between Russia and Ukraine has significant implications for international organizations, including sanctions and supply chain disruptions. With over 5,000 sanctions imposed since the start of the conflict, companies must adapt quickly to ensure compliance and mitigate risks.
Sanctions Compliance: A Critical Component of Risk Management
Sanctions compliance is a critical component of risk management, according to Tony Adame, Aon’s Business Continuity leader. Organizations need to take a proactive approach to identify potential risks and develop effective strategies to manage them.
- Prioritize governance and management commitment
- Conduct regular risk assessments
- Implement robust controls to prevent sanction violations
Supply Chain Disruptions: A Growing Concern
The conflict has already caused significant disruptions to global supply chains, with Russia’s cut-off of gas supplies to Europe impacting key manufacturing efforts. The spiraling cost of fossil fuels and sanctions on oil or gas exports could further exacerbate the situation, pushing countries into recession.
- Food shortages are a growing concern, as Ukraine and Russia account for 30% of global wheat exports
- Blockages of critical freight routes have led to food shortfalls worldwide
- China’s potential alignment with Russia could put additional pressure on raw materials and finished goods
Onshoring or Nearshoring: A Strategy for Mitigating Risks
To combat supply chain disruptions, organizations may consider onshoring or nearshoring their operations. While this approach can help reduce reliance on foreign suppliers, it also requires significant investment in infrastructure and human capital.
- Carefully evaluate the costs and benefits of onshoring or nearshoring
- Consider risk profiles and supply chain dynamics
Practical Steps for Managing Supply Chain Exposures
To manage supply chain disruptions, organizations can take the following steps:
- Find supplier alternatives
- Codify supply chain dynamics and link to cost of risk
- Consider insurance as a backstop
- Develop scenarios and games to understand critical supplier risk areas
- Coordinate with legal and compliance teams to ensure global, federal, state, and local laws are followed
Conclusion
The ongoing conflict between Russia and Ukraine is having far-reaching consequences for international organizations. To navigate these challenges, companies must prioritize sanctions compliance, supply chain risk management, and proactive decision-making.
“A dedicated cross-functional team can help identify potential risks, assess their impact on the organization’s risk profile, and recommend effective responses,” said Ladd Muzzy, Director of Enterprise Risk Management at Aon. “In today’s fast-changing world, having a robust approach to risk management is crucial for making informed decisions.”
For more information on how Aon works with C-suite and risk managers to manage organizations’ risk profiles in constant flux, please contact [email address] or write to [email address].